Is a Small Business Loan Installment or Revolving? Everything You Need to Know

Jordan Brooks

Jordan Brooks

— 4 min read
Stack of euro banknotes and scattered coins symbolizing wealth and finance.

Estimated Reading Time

7 minutes


Key Takeaways

  • Knowing the difference between installment loans and revolving loans is essential when making a well-informed decision.
  • Installment loans provide predictable monthly payments that make budgeting easier.
  • Revolver credit offers flexibility to finance changing corporate needs and cash flow swings.
  • The loan that you select should be tailored to your business plan in order to ensure you can build sustainably.


Table of Contents


The Size of a Small Business Loan

When the success or failure of a business often hinges on decisions made, one question that carries considerable weight is: Is a small business loan installment or revolving credit? This is an important question, as the way a firm raises money ultimately influences the financial landscape in which the company operates. Whether you are a new entrepreneur exploring opportunities or a seasoned entrepreneur preparing to expand, the details of small business loans are crucial.


Breaking Down the Types of Small Business Loans

There are two primary kinds of small business loans: installment loans and revolving credit. All of them have their own quirks and applications for various business needs. Knowing the distinctions is crucial to choosing the right financing product for your business.


Installment Loans: An Organized Way to Finance

An installment loan is the old standby of small business financing. They offer a flat sum of money that a business owner agrees to pay back (with interest) over a specified term. The repayments are patterned and on a schedule — typically monthly — which can be a relief for consistent expenditures.


Term Loans: These are frequently used for one-time expenses such as a wedding, a home remodel or debt consolidation. Good for: Established businesses that can benefit from an influx of capital or make use of long-term financing. Great for: Financing the purchase of really big-ticket items like commercial real estate and construction, or buying companies and facilities that use large amounts of capital and need to repay the loan on a set schedule.

Equipment Loans: Equipment loans are available to businesses that depend on equipment, or that will need machines or devices to make a profit. The loans make certain businesses can receive the funds necessary stay competitive.

Commercial Real Estate Loans: When you want to make your business real and build a dream of having a business on the premises, get the commercial real estate loan. This form of installment loan also spreads the payments over a number of years, meaning that if the need to purchase property arose, it could be done.


Revolving Credit: Not Just Flexible—Dynamic

Unlike an installment loan, a revolving line of credit facilitates flexibility with a maximum amount of available credit that businesses can tap into as funds are necessary. It is an evergreen credit, which may be topped up with each repayment to keep financing levels constant for businesses.


Comparing Installment Loans vs. Revolving Credit

Understanding the differences between installment loans and revolving credit is essential for an informed choice. Here's a comparison to provide an example:

  • Structure: Installment Loan: Lump sum up front, fixed payments. Revolving Credit: Access to credit limit on an as-needed basis.
  • Repayment: Installment Loan: Set schedule, fixed term. Revolving Credit: Flexible draws and repayments.
  • Use: Installment Loan: Large and one-time purchases (equipment, expansion). Revolving Credit: Ongoing or unexpected expenses.
  • Example: Installment Loan: Term loan, equipment loan, SBA 7(a) loan. Revolving Credit: Business line of credit.


Deciding on the Correct Financial Route

Small business financing is not simply one or the other—installment and revolving options are both suited to the business ecosystem. Which one is better for your business comes down to what you need out of a loan and what type of expense you’re looking to finance.


Conclusions: Matching Financing to Business Needs

Within the small business space, financial flexibility can be the difference between success and stagnation. Whether in the form of the stable predictability of an installment loan or the nimble freedom of a revolving credit line, the right financial choice can deliver growth and stability. Knowing that a small business loan is installment vs. revolving allows entrepreneurs to plan their financing accordingly so as to hold steadfast to their blueprint and to capitalize on opportunities as they present themselves. After all, the ability to make sound decisions when it comes to financing options, is what affords businesses the opportunity to grow with confidence – and sustainably. Once you decide on which loan to pursue for your business, you can compare the unique perks linked to each loan option and choose the financial path that best suits your goals.


Frequently Asked Questions

There are two main types of small business loans, installment loans and revolving credit, which cater to various financial needs.

Should I choose installment or revolving credit?

The right choice comes down to your company’s unique finances and the expenses you need to fund.

Can I get both types of loans for my business?

Yes, businesses can use installment loans and revolving credit to meet a variety of financial needs and make sure their cash flow is put to the best use.

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